When the Present Value Analysis of a Proposed Investment Results

question 29

Multiple Choice

When the present value analysis of a proposed investment results in an indication that the proposal has a rate of return greater than the cost of capital, the investment might not be made because:

• A) the quantitative analysis indicates that it should not be made.
• B) management's assessment of qualitative factors overrides the quantitative analysis.
• C) the timing of the cash flows of the investment will not be as assumed in the present value calculation.
• D)post-audits of prior investments have revealed that cash flow estimates were consistently less than actual cash flows realized.

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Definitions:

Standard Hours

The predetermined amount of time expected to complete a task or produce a unit of product under normal conditions.

Total Standard Cost

The aggregated cost of direct materials, direct labor, and manufacturing overhead used in producing a product under standard costing.

Standard Cost

The planned cost for a unit of product or service, serving as a benchmark for evaluating performance and setting budgets.

Net Operating Income

The profit a company makes after deducting its operating expenses, without accounting for taxes and interest.